Jason Hartman starts this episode by listening to a CNBC clip about the demand for property in the seller’s market. He also talks about Trump wanting to bring the tax rate down and how this will boost the economy, and how investors can benefit from the multiplier effect. In the interview segment of the show, he hosts Joe Fairless. Joe shares his startup story and reflects on the positives and the negatives of his investment experience.
Announcer 0:00
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
Announcer 0:13
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it on now. here’s your host, Jason Hartman with the company solution for real estate investors.
Jason Hartman 1:04
Welcome to the creating wealth show. This is your host Jason Hartman with episode number 822 822. Thank you so much for joining me here today. As we dive in and talk a little bit about something you rarely hear on our show, and that is apartment syndication. You’re going to hear a great rags to riches story, if you will, As the old saying goes, and I think you’ll like it. And also I am happy to announce something very rare. Yes, very rare. We have had zillions, well, maybe not exactly zillions, but quite a few, at least quite a few people in companies approached us over the years and asked to sponsor the show. And we have said no to quite a few of them because we didn’t think they were fit with our message. But we do think this company is a fit, and that is renter’s warehouse. I had the pleasure Speaking on a panel last year with their founder, and we met in Phoenix with a bunch of their team members last year, never quite got a working relationship off the ground. They were working on some of their technology and expanding into some other markets. And we were just busy doing other things. But we are really looking forward to working with this company. It’s called renter’s warehouse. They’re an award winning property management company. They’re servicing over 13,000 investors nationwide. They are a Morningstar rated property manager. They deliver unmatched service and transparency. They have a centralized model and they local staff in several markets, that provides trustworthy support across many markets. Now they are not in every single market that we’re in, or every single market we’ve been in, but they are in many of the major markets. So for example, if you own a property instead Chicago and you’re in you live in New York or California or Washington state or wherever you can feel rest assured that they’re going to take good care of your Chicago property or property in any of the other markets. They track all aspects of your property, and they never try to profit on maintenance or repairs. Plus you enjoy a flat pricing model, and tenants that are warranted up to 18 months. So go check out renters warehouse.com slash Jason that’s renters warehouse comm slash Jason for a special offer and learn more about them. We’re really excited about working with them, and happy to have them as a sponsor for the show. And maybe in the near future. We’ll have them on the podcast to talk about things in more detail. Okay, so the market is hot. And listen, I know a lot of you get discouraged. I totally understand because you go out and you pick out properties and then Boom, they’re gone. I know, I know the feeling it’s it’s tough. It’s tough out there. But look at that means that properties are obviously in high demand. And they’re in high demand for a reason. That’s because so many people in the market think the deals are good. Now, there is a distinction here. Of course, you know, I talk about this frequently, how you must subdivide, you must divide markets up into three categories, linear, cyclical, and hybrid markets. And so I’m going to play a short CNBC video clip for you here in a moment. And this is in a cyclical market. As you can tell, those markets are even crazier. Look at I spent the vast majority of my real estate career in the cyclical markets in Irvine, California, Newport Beach, California, Tustin, South Orange County, Michigan VA whoa Aliso Viejo Laguna Niguel. All of those areas Foothill ranch ladera Ranch, I sold many, many properties. And then I owned a real estate company, after I was a regular agent that sold many, many properties in those markets. And of course, you know, about 12 years ago, I sold that company to Coldwell Banker. And that was the impetus for me getting into this business, becoming a financial services firm for real estate investors because I just found that when you wanted to be a nationwide investor, when you wanted to invest in the most historically proven asset class, in all the world, it was pretty hard to do on your own. At least for me, it was pretty hard to do on my own. And so basically, I got into this business and created a whole company and a staff and a team in a process and a business model around this business. So that I could be my own first customer. And that’s exactly what I was, I was the first customer of my own my own business. So that is kind of interesting how big discoveries come out of needs. What do they say? Necessity is the mother of invention, right is that the same Necessity is the mother of invention. So that’s why I started this business. And it has been a great ride. And we thank all of you for your support over so many years, and so many thousands of transactions and so many properties that you’ve purchased. So we really appreciate that and we will continue to do whatever we can to be a vital part of your wealth building team, as we help you build nationwide real estate portfolios in those good conservative linear markets. And maybe from time to time, we’ll get off into a hybrid market. But probably not these crazy cyclical markets. So my point being here, if you think it’s difficult to get a property in Indianapolis, or in Memphis or in Little Rock or in wherever, or in Oklahoma City, or any of these markets, or Jackson, Mississippi or any of these markets that you see at Jason Hartman calm in the property section. Well, it would be even worse and even more crazy. If you were in some of the cyclical markets trying to buy a home. And you know what, don’t buy home in those markets, rent your mansion. It’s a much, much better deal. It really is amazing. By the way, well, let me play this little video clip for you here and I can’t quite get it to queue up and start right at the beginning. So what Diana Olek with CNBC says, CNBC says when she starts as she says the market is Red Hot properties are flying off the shelves. And here I am just going to play this the low tech way right off my computer. And we will listen it’s only a minute and 20 seconds
‘Video clip excerpt’ 8:11
High especially at the entry level as millennials finally start to move into their home by ears, and even the new spring listings are not enough. Not even close. We went to a Sunday open house in Burbank, California yesterday. It already had three offers before the real estate agent even opened the door and when he did more than 100 people came through. I’ve been selling real estate for 25 years. And this is the strongest seller’s market I have ever seen in my entire real estate career. The house was listed at $780,000 which is considered entry level in the LA area. It drew a lot of renters looking to buy but getting out bids one young couple we spoke to had already lost out on another Hall. We actually did over asking price and yet it went way over asking price, I’m guessing With waiting to consensus has been one of the things we we can wait as much as you like.
‘Video clip excerpt’ 9:08
And that’s one of the biggest issues for first time buyers. They don’t have a lot of cash, they’re mortgage dependent, so they cannot waive the appraisal contingencies. And in most cases, homes today are not appraising as high as the sale price. That means buyers have to make up the difference in cash and cash, my friends is king in this market back to you.
Jason Hartman 9:27
Okay, so did you hear what Diana Olek with CNBC said about how buyers have to make up the difference in the appraisal price. And folks, I know that some of you listening are thinking well, gosh, I had to do that too. In You know, one of the markets that that you’re buying in as an investor not the crazy Burbank or Los Angeles market, and that is true. Sometimes you have to do it. Sometimes though, that appraisal is saying maybe you shouldn’t do it and each situation is has to be evaluated on an individual case by case basis. Because, again, real estate is a very fragmented business. We all know, and we all understand that. Now, one little note, I want to say on on a separate matter, you know, we’ve talked a lot since the election since the surprising win of Donald J. Trump. And we talked about how I believe and I predict that that will stimulate the economy dramatically. Well, many would argue that it already has, as Trump approaches his his first hundred days in office, that is, has certainly happened, right. But today, in the news, you’re seeing a lot of news about how Trump wants to reduce the corporate tax rate for owner operated businesses. Now, I don’t know exactly how they define that. But this think about it how insane I mean not insane from a bad way. But how insanely incredible and fantastic this would be for the economy. If it happens. He wants to bring the tax rate from 35% down to 15% 35% down to 15%. Now, who knows if this will ever happen if it’ll ever pass if it over be signed into law? I don’t know. But look, folks, at least at least love or hate Donald Trump. At least you’ve got someone who is a business person in the White House for the first time in a long, long, long, long time. Okay, at least you’ve got that and look at this. You know, think think about how much we’ll get if you are affected by this.
Jason Hartman 12:03
And you make $200,000 a year, for example, and you have an extra $40,000 a year to put into the economy. And you look at the multiplier effect on that. Okay. You know, the government is really into this idea of fractional reserve banking between the government and the central banks. And this is the way all governments and all central banks essentially work at their core. Okay. So our Federal Reserve or the European Central Bank, the ECB, or whatever, right? It’s all the same concept, the US can just get away with it better than anybody, because the US has the largest economy, the biggest brand, the world’s reserve currency, and the biggest military, the human race has ever known. So with that in mind, that’s what they do. Right? Money is lent into existence. We’ve talked about that before. times before how it’s very hard to get your head around this Listen, it took me years to get my head around this. And really, I still don’t have my head around it. But in many of the other episodes that we’ve done, or we’ve had bill Bonner from the Gora financial, or steve forbes from Forbes media and Forbes magazine, or Chris martenson from the crash course, or Laurence Kotlikoff has been on a couple times the very famous economist and, and you know, Harry dent, it doesn’t matter, you know, whoever right Bob Proctor with the Elliot wave theory, or any of the other, you know, literally hundreds of thought leaders and economists that we’ve had talked about this subject on the show over the last 1213 years, right. They talk about the multiplier effect. And that is true how when you borrow money, it creates eight new money. And I remember when I spent a day and by the way, it’s funny. This just came up on my Facebook memories, which I love that feature of the privacy invading Facebook company. That is a fantastic feature. So when Facebook memories, I spent a couple of days in Washington DC, with the National real estate investors Association. And this was about eight years ago, I was almost like new to Facebook back then. That’s when I first started using it, I think. And, you know, some of these pictures just came up the other day on my Facebook memories about how I was lobbying. Congressman, you know, I mean, I remember I ran right into john kerry in the hallway, you know, on Capitol Hill, and I spent a couple days there and we did this lobbying. It was really interesting. And I remember being in Orland specters office, and his, you know, one of his people, his assistants came out, and by the way, Nancy Pelosi, oh my gosh, she must have had the most luxurious office and the whole place. I mean, it was beyond ridiculous. The way these you know, Nancy Pelosi was like the most abusive politician. Did you ever read the articles when Obama was president and and Pelosi was flying around and, you know, all of our taxpayer paid aircraft and just the bar bill literally for the bar on the plane, from, you know, DC to San Francisco was like, many, many thousands and thousands of dollars all paid for by you. And I yes, thank you very much, you and I paid for that. Totally abusive, disgusting. But anyway, the multiplier effect. That’s our point here, right. It is that multiplier. And so I remember sitting in our inspectors office, and one of those people sat with us and she was very knowledgeable. But again, all part of the disgusting Keynesian You know, big government disasterous disaster that, you know, we have right, this token from a libertarian perspective. And she said look in we were talking about the bailouts. And then we were there to lobby for real estate investors and talk about seller financing. And, you know, hopefully get them to, you know, not pass Dodd Frank and the way they wanted to pass it. And I’m not sure what effect we really have, because it’s all too damn complicated. It gets, it gets lost in the shuffle. But she said the reason we she said exactly, almost exactly this. She said the reason we didn’t give the you know, what, between those three bailout programs, it was almost $3 trillion, right? The reason we didn’t give the money to the people, you know, you and I taxpayers in the form of our rebate, and we gave it to the banks instead, is because it would have a multiplier effect. Well, what does that mean? That means that if The banks had taken that money and instead of paying those frickin greedy criminals at Goldman Sachs, and B of A and Wells Fargo now, you know, I’m the most disgusted with Wells Fargo right now, instead of them lining their own pockets, right? With that money if they had really lent the money out, as they should have, she was saying that the reason we gave the money to the banks instead of to the people is because it had a multiplier effect. And she’s right, even though philosophically I disagree with the whole concept of fractional reserve banking or fractional reserve lending call it what you wish, but she is right. There’s a multiplier. So what happens if the tax rate I mean, look under Trump, the tax rate is probably going to go down. I think we can we can bank on that. We by how much in which way in which type of tax? We don’t exactly know you know, because that has to work. Its way through government, and it’s very difficult to do. But imagine if you earn $200,000 a year, and you now pay $40,000 less in tax. Right? Because of that example that I just shared on the Trump tax proposal. If you pay $40,000, less in tax, what could you do with that money? Well, you could buy a nice new car every year, every year, a brand new car. Okay, so what would that do? Well, it would enrich the car salesperson, the car dealership, hopefully you don’t buy a Tesla Model three.
Jason Hartman 18:40
I don’t know my Tesla Model X has been pretty dang bad. It’s been a terrible experience. That Model S the one I had before it was okay. But this one, I am not happy with Tesla. Call me an unhappy customer. So don’t buy a Tesla. Okay with that money, but If you did that, imagine if you improved your home or bought two more rental properties, hey, with $40,000 extra, you could pretty much buy two kind of inexpensive rental properties, maybe, you know, you put in an extra 10 grand and and you really could buy two nice rental properties. Imagine the effect, the multiplier effect that has on the economy, the number of people that are involved in that real estate transaction, the people that fix up that property because you bought those two properties, you created more demand in the marketplace.
Jason Hartman 19:40
And what did that do? Well, that cause some rehabber, a local market specialist to go out and hunt for more properties. And how did he hunt for more properties? Well, he probably did a bunch of mailings, so some money went to the post office. That’s probably not the best use. But anyway, it did some money went to the printer. He may be hired somewhere. People or she, for that matter, hired some people. Then once they got a property, they bailed someone out of maybe a property they couldn’t afford, and help them create more financial stability for themselves. And then what happened after that? Well, they had to hire a rehab crew, flooring people, painters, electrician, plumber, some different tradesmen to come through landscaping people to come through and fix up the house and get it rent ready. And maybe they bought some window coverings and, and a whole bunch of money trickled through the system. Maybe they bought some new appliances, and then they paid someone to sell the property for them to find them an investor. So maybe they paid our company. Maybe they paid a traditional realtor, maybe they paid both. And then what happened? Well, that investor put the property up for rent. And then a Tim came in and rented it and a credit report was run and somebody Charge some money for that, and an application fee happened and some money changed hands. And then the renter moved in. And then a property manager got one more property to manage for their account. And they made some money. And it goes on and on and on. Hey, this is the glory of capitalism, right? I don’t have to explain this to any of you. Unless you’re a total left winger, right. You get it you understand how incredible the multiplier effect is. This is why Arthur Laffer and Ronald Reagan had before the internet boom. They’re the largest peacetime expansion of the economy ever in human history. was under Reagan. Okay. Now, yet after Reagan, you had Clinton come over, you know, a couple terms later, right. And he actually beat Reagan, but there’s A couple things you have to know, you got to number one adjust for inflation. That’s the first thing you’ve got to do. And number two, is you’ve got to adjust for the fax machine and the internet and the speed of commerce and the increase of commerce and the efficiency of commerce. And so that was what Clinton benefited from. But, you know, to Clinton’s credit, even though I’m not a Clinton fan, in, in hindsight, as far as the economy goes, he actually doesn’t look too bad, because, you know, Clinton knew enough to kind of keep his hands off it. He was busy with his hands on Monica. Bad joke. Bad joke, Jason. Don’t say that. Okay, anyway. So yeah, that’s what you had. So this is trickle down economics, right? It’s supply side economics. In essence, it’s the multiplier. It’s fractional reserve banking in a positive way. So hey, let’s keep an eye on what the Trump administration does here. But no matter what, I’ll bet Yeah, I’ll just bet you 10 Taxes are going down. Maybe they’re not going down by 20%. But they’re going down. Okay, we are going to see a tax reduction and some better tax law under Trump. And that’s going to be really, really good for all of us. Hey, let’s get to our guests. Let’s talk to Joe fairless, friend of mine, and a good guy and we’ll learn a little bit about apartment syndication his rags to riches story, and be sure to check out Jason hartman.com for properties, educational products, Real Estate Software on the resources page, and we will talk to you on the next episode, which will be flashback Friday hand picked for you coming up in just two days. All right, here’s Jeff.
Jason Hartman 23:50
It’s my pleasure to welcome back a returning guest and that is Mr. Joe fairless. I’ve been on his show a couple of times and this is his second time on mine. And he has a Phenomenal story about his success in his startup as an apartment syndicator. And so let’s just dive into that. I want to talk about this. He’s controlling now 130 million dollars worth of real estate in Dallas Fort Worth Houston in Cincinnati, and all through syndicating multifamily properties. Joe, welcome back. How are you?
Joe Fairless 24:20
Thanks a lot, Jason. I’m doing well. Nice to have nice to be on the show.
Jason Hartman 24:24
Yeah, yeah. It’s good to have you back. So you started just not not too long ago. Give us some idea as to your your startup story. First of all, what attracted you to real estate?
Joe Fairless 24:36
I was in advertising or an advertising agency in New York City. And I’m originally from Texas, but move straight from New York City to Texas. or excuse me, from Texas to New York say That’s what I thought. And I was making $30,000 a year as a junior project manager.
Jason Hartman 24:56
So clearly, third Joe 30,000 in New York City. He goes on. I was waiting. I was rolling. Yeah. You’re a baller. Yeah, exactly.
Joe Fairless 25:04
And so clearly I didn’t have any money to invest in real estate or save. But as I progressed, I was able to save money. And I ended up becoming the youngest vice president of a New York City advertising agency. I, my salary was like 150,000 plus bonus. So as I progress, I was able to save money. And I needed to figure out what was I going to do because one of the things I did while I was working in advertising living in New York, is I got made fun of by my friends, a whole bunch. And the reason why is because I stayed in my apartment for nine years. Even though all my friends around me were upgrading their apartments living alone, I had a roommate from Craigslist. I’d like seven different roommates from Craigslist over those nine years. And I had a dorm style refrigerator, no living room, but my rent was the same, and it was low relative to living in New York City. I was able to save more money than most people would be able to with the money I was bringing in. And I bought my first place in 2009
Jason Hartman 26:09
I okay, so before you go on, I want to ask you about that first place. But, folks, this is what I always talk about being willing to delay gratification, that is the sign of foresight and intelligence and self discipline that will ultimately bring you success in life. You know, there are people who spend money and squander their money on the appearances of wealth. Or there are other people like Joe Our guest today, who actually saves his money or saved his money to buy the things that create wealth rather than give the appearance of wealth. Joe, all of your friends were doing the appearance of wealth thing. That’s the common common path. You did not take that path you lived way below your means, and certainly 150,000 plus bonus at an ad agency is still not rolling in a New York City. Haven’t because I know how expensive it is to live there. So what was your first property is a four bedroom two bath house might be two and a half bath but four bed, two bath ish house bought for $76,000 downpayment all in I was at around 20,000, because I put 20 were in Duncanville, Texas, which is 15 minutes south of Dallas. Okay, and so that was 2009 2009
Joe Fairless 27:21
a very in hindsight, a very, very good time to be dying in Dallas. No question 2009 and then, and by the way, before I bought that house, I lost my earnest money about $1,000 because I messed up my real estate agent messed up. I don’t exactly remember what we messed up on but clearly it was not paying attention to the contract. And that was a big hit. It still would. It wouldn’t be a big hit for me now, but it still would, it would burn a little bit if I lost earnest money 1000 $2,000 on something and that that happened. It delayed me so I was ready to buy in January. But I didn’t actually close on something until October. So it took me 10 very, very long months to find the property and then to actually close on it. And then I went from one single family house in 2009 bought another a year later another a year later another A year later, ended up getting for single family homes. They all well, the fourth one was not good. It was more of a fixer upper. I was living in New York City, it was in Fort Worth, Texas. And I didn’t have the right team in place. I ended up probably about breaking even I sold that home because it just didn’t meet my model. But the three homes I still have today, but I realized quickly that one I was apathetic towards my advertising agency responsibilities. And two, I wasn’t going to get rich off of buying these one off single family homes at the frequency in which I was buying them. Therefore, I decided that I need to look at either I need to do something different so I went to a rich dad poor dad seminar three day seminar, and
Jason Hartman 29:09
they taught him and let me guess you met Ken McElroy?
Joe Fairless 29:12
No, I didn’t meet Ken All right. But he’s
Jason Hartman 29:14
been on the show a couple times. Okay. Cool. Yeah, I spoke to her group before Yeah.
Joe Fairless 29:18
I although I think I have read one of his books. I ended up being as soon as I walked in, you know, my chest was puffed out i thought i would i was i was very, very experienced real estate investor when in reality the first thing they said when they walked in as you’re not going to get rich on single family homes now that’s debatable because I’ve interviewed people who have gotten rich off them but they said oh, you know, what does rich mean? That’s fine, though.
Joe Fairless 29:48
So they said do mobile homes or, or apartments, and I was not familiar with mobile home so I gravitate towards apartments. I was living in an apartment at the time. And I started studying apartments. And that got me into the apartment world. And simultaneously, I was, as I mentioned, I was apathetic towards my full time job. And I eventually left advertising industry. And that was in July, excuse me, that was in January of 2013. And now fast forward to upset 2017 and I’ve got eight apartment communities, Houston, Dallas, and now we’re going we have one in Fort Worth, Texas under contract and over 130 million dollars worth of apartments that my business partner and I have,
Jason Hartman 30:42
okay, so your business partner and you got into syndicating apartment buildings. Now, how did you start that? I mean, like, what did you do first? Did you find a property and then go out to some people you knew and say, Hey, you know you want to throw in some money on this or did you first Create a private placement memorandum and then find a deal. I mean, give us the insight into that.
Joe Fairless 31:07
Well, it’s what I did, and then what I should have done. So I’ll tell you what I did. And that’s
Joe Fairless 31:12
fine. Honestly, what I should
Joe Fairless 31:14
have done, what I did is I was looking for properties. Even though I didn’t have the money lined up, I had some initial interest. And really what sparked my or what motivated me to press the gas is I was teaching a class in New York City while having my full time job on how to invest in other markets where the numbers make sense, because I had a lot of my advertising friends say what you have a house we have two homes, what do you How are you three houses? How are you able to do that? Yet you work in advertising, and these homes are not in the state. So I ended up teaching a class and one of my oldest brother’s friends, he heard that I was taking this class. He’s like, Hey, can you just send me the PowerPoint Want to want to take a look at I’m interested in getting the real estate? Well, he looked at he said what
Jason Hartman 32:04
was the what was the title of the class? Like
Joe Fairless 32:06
what was the class on how to become financially independent while keeping your full time job?
Jason Hartman 32:10
Okay, and that was about single family homes or apartments
Joe Fairless 32:13
that was about single family homes. I wasn’t in the I wasn’t in the apartment morial jet, okay. And I taught probably about 40 or 50 in person classes with groups ranging from one of my friends to about 10 people. So it was they weren’t big classes. But it was just something that I was doing on the side. And he anyway, this gentleman, my brother’s friend, his name’s Kelly. Kelly said hey, send me the info he did. He said, this looks interesting. But if you ever do something larger, let me know. So I was like, Wait a second. Okay. Maybe I have a customer before I have a product because I’m in the advertising industry. I know about marketing and and that is the best business model when you have customers. demanding stuff and he wasn’t demanding it. But just to make the point when you have customers seeking something out, but you don’t have enough product or you don’t have the product, and that’s what really motivated me, I was like, wait, I think I’m I got something. So I even though he was on board, the property as I was looking at were much larger. And I thought, you know what, I’ll just find the money if I find the property. And eventually leap of faith is a leap of faith. And you know what, it eventually panned out, I did find the money from investors, and those investors I met through Alright, I knew through my existing network, which was advertising, so I was advertising co workers that I advertising co workers. It was I was a flag. I was a captain of five football team. So one guy who only knew me through playing flag football in New York. He invested each I had three, three roommates. In college, one post college they invested, and I’m okay,
Jason Hartman 34:06
so give us the numbers though. Like how much was this first deal? What was it and how much did they invest
Joe Fairless 34:12
6.3. So the master lease is a little unique 6.35 million, the the, that was the purchase price when we exercise our option the purchase, the amount that was raised was 843,000. But the disclaimer or the asterisk is that I had the brokers put in their commission to get more of a down payment for the property. And it was like $317,500, I believe, and they got 25% of the deal, which is a little bit less I believe, I think they got watered down a little bit in in the total equity and then The yeah we and we did a master lease with with as 168 units.
Jason Hartman 35:08
Okay, so now that begs the question because people are asking what is a master lease? So can you elaborate on that?
Joe Fairless 35:14
Yeah, sure master lease you might have, I’m sure the listeners have or they might have
Jason Hartman 35:20
I mean, I know I know No, I know.
Joe Fairless 35:23
I get that. So I so the listeners might have heard of a land contract and it’s similar to a land contract but if you haven’t heard of either one, I’ll tell you what a master leases master lease is basically leasing the property from the current owner and taking over all of the income so you receive all the income but guess what, you also have to pay all the expenses including the debt service and the objective or the the reason why You would do a master lease is if there is a owner who has a property that they have a prepayment penalty on or there’s the yield maintenance or defeasance. Basically, they can’t sell the property without having to pay a large fee to the lender, then this is an opportunity to, for them to exit the property and you to enter the property as the master during a master lease and take over operations now you
Jason Hartman 36:34
you because because so you get around a prepayment penalty, which big commercial loans often often have those. And there they are huge, by the way, you know, when you’re talking big properties. And so you basically you don’t transfer title to the property, you just basically become the master tenant and have a bunch of these sub tenants just like if you were the owner, right?
Joe Fairless 36:59
Yep. Exactly.
Jason Hartman 37:00
And you become it’s sort of a triple net concept to in a way because you basically become responsible for everything in the master lease, right?
Joe Fairless 37:09
Yeah, everything. Absolutely. Okay. Yep. So
Jason Hartman 37:11
what else do you want people to know about the master lease? Because that’s, that’s an interesting, creative way. You know, what I’d be curious about Joe, is have you ever heard of a lender? You know, there’s an old principle in the legal world, you know, if it walks like a duck and talks like a duck, it’s a duck, you know, no matter what you call it, right?
Joe Fairless 37:28
Have lenders ever tried to call, you know, call that loan and say pays the prepayment penalty? I wonder with a master lease? Yeah. And that’s what I was going to say earlier, is there are downsides to a master lease and things to watch out for. And one thing that I watched out for thank goodness, prior to closing the master lease, is I read the loan documents and and it was man Yes. And it and they we were I actually delayed closing At least two weeks, because after reading the loan documents, it stated something to the effect of, if you do something like a master lease, you better get the lenders approval. And I wasn’t about to bring in, you know, my investors money into a deal where that could have just been wiped away because the lender wants to take the property back calls the note. So what we did is we notified the lender, and we got written approval from the lender. So that’s, that’s a great point that you mentioned, and that we, that for anyone interested in doing a master lease, knows because I’ve, I’ve interviewed people who do talk about master leases and the amazing benefits of it. Very rarely do they mention the due on sale clause or the the lender going back to take it usually, they meant they say, Oh, well, the lender, how would the lender know? Or they never do that where they wouldn’t That if the property’s performing, that’s a lot of risk with a large apartment community. Maybe you can get by with that with a single family house worth $30,000 it’s, you know, but I wouldn’t like
Jason Hartman 39:12
that right now. Yeah, I would agree with you. And you know, Joe, I’m so glad you brought that up. Because so many people, you know, we have clients that come to us with his stuff all the time, and I’m sure you have investors that come to you. And it’s like, they saw the guy on Late Night cable TV, they went to a seminar, and they all just massively over simplify it. It’s such a crime. what some of these promoters out there do, you know, in just massively over simplifying this stuff, isn’t it?
Joe Fairless 39:39
Yeah, yeah, there’s there’s a lot involved. And you’re also in a vulnerable position when you do the master lease because you don’t own the property. And the lender is going to be really focused on the person who’s personally guaranteeing the loan and that is the person you’re doing. The master lease with if there is a personal guarantee. And so there’s three parties involved and when you do an exit or when you have a contract that has to be reviewed, let’s say you’re selling the property, then you’re going to have three sets of attorneys that are needing to review and approve and agree upon everything. You’re gonna have the buying groups attorney, you’re gonna have to your attorney and you’re also going to have the current owners attorney. And so if you don’t like lawyers, then this is not your business. This isn’t Yeah, well this is not your business but this type of approach. I mean, it might not work because there’s a lot involved so it is not a simple tactic and holy cow I looking back, why did I do it on my first deal, I don’t know it just made sense for that deal. But I wouldn’t necessarily recommend a beat on your first deal because it is more advanced now all of our future deals. Since enemy I have eight apartment communities. They have not been Master leases, nor would I do a master lease again. Because I think the with the interest rates now, where they’re at who knows where they’ll go but where they’re at, we’re getting good financing. And we we approach it more traditionally but that was just how I got in the game.
Jason Hartman 41:17
Very interesting stuff. Okay. How did you learn to syndicate though? Like, you know, when did you did you just go to an attorney and have them draft the private placement memorandum? Or, you know, what did you do? You know, there’s sort of a lot there to know about things that, you know, did you sort of have another person’s document that you use as your model or
Joe Fairless 41:39
I had a consultant that I hired, and I brought him on. In addition, I befriended a real estate investor who was doing syndication in New York City, and I happen to meet a developer in who’s based in Tulsa. Oklahoma. I met him at a conference that I was I gone to previously. And he helped me out and he shared documents and attorneys and contacts with me. Good, good stuff.
Jason Hartman 42:11
Okay, so that was the master lease deal. Now, did you dispose of that property? Or do you still own it? or lease it?
Joe Fairless 42:18
Yeah, right. Right. Yeah, we sold that property. And the, the next eight properties that we bought. So I did that first one here. The interesting part is, I did the first one on my own. And what I recognized and this is how a lot of people wonder, you know, how did I scale so quickly? And I think that’s, I imagine a lot of listeners want to know that too. And how I was able to scale so quickly, was on the first deal. I did it all myself. I mean shard property management, partners and and lenders etc. But I did it. I put together the ppm with an attorney, I put together, you know, the property management team, etc. When I realizes I have talents or I’m skilled and one or two things I’ve got, I’m specially talented and maybe one to two things at most. And in other areas, I’m lacking the experience or I am not an expert in. And so what I did with deals number two through eight was I partnered with my current business partner now and we formed the company Ashcroft capital. And that has grown the business tremendously because my focus now is on raising money and bringing making sure we have the equity for every deal versus his focus. He has more traditional background, where he did asset management for half a billion dollars or a billion dollar, half a billion dollars worth of apartments. been in the industry for 10 years doing multifamily for a larger company, and he does the asset management slash underwriting primary underwriting. And that’s the key for anyone out there looking to scale their business. The key is identify your special talent, know what you want to focus on what you’re good at. And that’s helped us grow Ashcroft capital to where it is today.
Jason Hartman 44:24
Yeah, that’s fantastic. Okay, good. Well, you know, maybe there’s just something I haven’t asked you that you want to share with the group and, you know, feel free to just
Joe Fairless 44:33
let you have it. For anyone who wants to do multifamily syndication. I’d say the first thing you want to do is know the foundational elements of the business and I’ve got a free guide that happy to give apartment resources guide with a bunch of free resources and podcasts like Jason’s on there, you can email info at Joe fairless.com and it gives you all the bunch of free resources that helped me get up to speed when I was starting out and you know they’ll help you to also multifamily syndication comm has a bunch of videos and content for people to take it to the next level to learn more about it.
Jason Hartman 45:16
Excellent. Well that’s fantastic. Joe, thank you so much for joining us today and I just wish you continued success you’ve really got an amazing story and it just shows how real estate in any form I mean you can you know you I always like to say you can make money in anything there’s not one answer you know, look at I wouldn’t be investing in retail right now. For example, because of the retail apocalypse we keep hearing and reading about. But certainly there are people who make money doing retail properties, right. I like housing I like apartments, single family and mobile home parks. Those are my favorite Self Storage probably being the fourth although I’ve never owned a self storage but I’ve had mobile home I have a mobile home park and and a couple of apartment complexes And then a bunch of single family but you know, you can make money in any form of this business, industrial properties, whatever. You just got to specialize and focus and be very, very careful of the market and the overall situation out there. Anything you want to say to that before we sign off?
Joe Fairless 46:18
Nope. All good.
Jason Hartman 46:19
Okay. Hey, Joe, thanks so much for joining us. Thanks.
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